Read more: Good news on the economy—for now
Today is the second, and final, day of this year's G20 summit—a forum for the leaders of the world's 20 largest economies. It is also the first such summit since Britain voted to "Leave" the European Union. It comes in the middle of one of the first major releases of economic data since the vote—and the news on that front has been better than expected. News from the G20, however, gives us less to celebrate about. It is this second set of information that tells us about Britain's long-term prospects, and they are gloomy.
Theresa May arrived at the summit in Hangzhou, China, hoping to convince her counterparts that Britain is "open for business" despite the Brexit vote in June. This has not gone to plan.
On the first day of the meeting, May received a rebuff from Barack Obama. The US President reiterated the position he made clear in the run-up to the vote on 23rd June, when he said that post-Brexit Britain would be "at the back of the queue" when it comes to trade deals with the US.
"We are going to do everything we can to make sure the consequences of the decision don’t end up unravelling what is already a very strong and robust economic relationship," he said on Sunday. “But first things first. The first task is figuring out what Brexit means with respect to Europe. And our first task is making sure we go forward on TTIP negotiations in which we have already invested a lot of time and effort.”
This snub, though disappointing, was arguably to be expected. The rebuff from Japan was less so. In advance of the G20 summit a government task force from the country issued an unprecedented 15-page report explaining that Japanese corporations could leave the UK en masse unless Britain's access to the EU's Single Market is maintained. The report from Tokyo reads: “In light of the fact that a number of Japanese businesses, invited by the government in some cases, have invested actively to the UK, which was seen to be a gateway to Europe, and have established value-chains across Europe, we strongly request that the UK will consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses.”
It concludes: “Japanese businesses with their European headquarters in the UK may decide to transfer their head-office function to continental Europe if EU laws cease to be applicable in the UK after its withdrawal."
This is serious: despite May's repeated confirmation that "Brexit means Brexit," just how far Britain will distance itself from the EU is an unknown. It is absolutely possible that it will leave the Single Market just as Japan fears. Continued access to it will mean that Britain must accept the free movement of people from the EU—that much has been made clear. Over the summer Jean-Claude Juncker, President of the EU Commission, said "There will be no access to the internal market for those who do not accept the rules—without exception or nuance—that make up the very nature of the internal market system.” This may well be unacceptable to many Brexiteers. Some, such as prominent Conservative Outer John Redwood, have already argued that Britain should leave the Single Market. It is therefore possible that Britain will end up calling Japan's bluff.
If the country follows through on its warning, that is a major hit to the British economy. Japanese firms employ roughly 140,000 workers in the UK. Nissan has its European design and research departments here, while Nomura, an investment bank, has its European headquarters in London. Honda, Mitsubish, and Daiwa all have operations in the UK. Japan's referendum-induced worries should be taken very seriously indeed.
The warnings from both the US and Japan come in the context of Britain's souring diplomatic relations with the G20's host country, China. At May's meeting with Chinese President Xi Jinping today, May will have to explain the delays to Hinkley Point C—the planned £18bn nuclear power station in which China has heavily invested. Britain has, it seems, fallen out with its three major trading partners: the EU, where 44 per cent of our exports in goods and services went in 2015, the US and China.
There has been more bad news since the summit. Australia’s prime minister Malcolm Turnbull initially seemed to give May a boost: after his meeting with her on Monday he said that their discussion was about “getting in to deal with the British early and making sure we can negotiate a very strong, very open trade agreement once they are out of the European Union.” After the summit the Australian trade minister Steven Ciobo reiterated this point—but made clear that any trade agreement was at least two-and-a-half years away. One will be struck only “when the time is right,” he explained.
Yet, despite all of this, recent economic data has been good. Over the past week the Purchasing Managers' indices have been released—these are economic indicators derived from surveys of companies. Today, the Markit/CIPS PMI for the services sector leapt to 52.9 after July's poor figure of 47.4—the biggest one-month gain in the survey's 20-year history. The news follows last week's better-than-expected manufacturing PMI. One could argue that the economic slump that was expected to follow the 23rd June Brexit vote simply hasn't materialised.
What to make of all this? Reports from the G20 have largely been bad news for post-Brexit Britain; the economic data has largely been good. One could argue that the two sets of information balance out—that the Brexit vote is not a total disaster.
Unfortunately, this rosy picture does not hold up. While recent economic data has been positive, it should be taken with a hefty pinch of salt. There are various reasons for this, but the key one is: Britain not yet left the European Union, and will not do so for at least two years. For the moment it remains in the Single Market, and continue to enjoy the economic benefits provided by it. Economic news may be positive now, and we should celebrate that. But it tells us very little about how healthy Britain's economy will be once Brexit actually happens. (For an expert's explanation of why last week's manufacturing PMI is nothing to get excited about, read this excellent piece by George Magnus).
Contrast this with the news from the G20. Unlike the economic data, rebuffs from world leaders do tell us something about post-Brexit Britain. Whereas the PMI figures offer a snapshot of our country's current health, the comments from the US and Japan look to the future. They are about what trade deals are possible once Britain has exited the EU. This clearly tells us more about Britain's long-term prospects.
So the bad news from Hangzhou—as well as Britain's faltering relationship with China—has not been counter-balanced by the positive PMI data. The latter is welcome. But on balance, the events of the last week do not give us much cause for optimism when it comes to Britain's future.
Today is the second, and final, day of this year's G20 summit—a forum for the leaders of the world's 20 largest economies. It is also the first such summit since Britain voted to "Leave" the European Union. It comes in the middle of one of the first major releases of economic data since the vote—and the news on that front has been better than expected. News from the G20, however, gives us less to celebrate about. It is this second set of information that tells us about Britain's long-term prospects, and they are gloomy.
Theresa May arrived at the summit in Hangzhou, China, hoping to convince her counterparts that Britain is "open for business" despite the Brexit vote in June. This has not gone to plan.
On the first day of the meeting, May received a rebuff from Barack Obama. The US President reiterated the position he made clear in the run-up to the vote on 23rd June, when he said that post-Brexit Britain would be "at the back of the queue" when it comes to trade deals with the US.
"We are going to do everything we can to make sure the consequences of the decision don’t end up unravelling what is already a very strong and robust economic relationship," he said on Sunday. “But first things first. The first task is figuring out what Brexit means with respect to Europe. And our first task is making sure we go forward on TTIP negotiations in which we have already invested a lot of time and effort.”
This snub, though disappointing, was arguably to be expected. The rebuff from Japan was less so. In advance of the G20 summit a government task force from the country issued an unprecedented 15-page report explaining that Japanese corporations could leave the UK en masse unless Britain's access to the EU's Single Market is maintained. The report from Tokyo reads: “In light of the fact that a number of Japanese businesses, invited by the government in some cases, have invested actively to the UK, which was seen to be a gateway to Europe, and have established value-chains across Europe, we strongly request that the UK will consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses.”
It concludes: “Japanese businesses with their European headquarters in the UK may decide to transfer their head-office function to continental Europe if EU laws cease to be applicable in the UK after its withdrawal."
This is serious: despite May's repeated confirmation that "Brexit means Brexit," just how far Britain will distance itself from the EU is an unknown. It is absolutely possible that it will leave the Single Market just as Japan fears. Continued access to it will mean that Britain must accept the free movement of people from the EU—that much has been made clear. Over the summer Jean-Claude Juncker, President of the EU Commission, said "There will be no access to the internal market for those who do not accept the rules—without exception or nuance—that make up the very nature of the internal market system.” This may well be unacceptable to many Brexiteers. Some, such as prominent Conservative Outer John Redwood, have already argued that Britain should leave the Single Market. It is therefore possible that Britain will end up calling Japan's bluff.
If the country follows through on its warning, that is a major hit to the British economy. Japanese firms employ roughly 140,000 workers in the UK. Nissan has its European design and research departments here, while Nomura, an investment bank, has its European headquarters in London. Honda, Mitsubish, and Daiwa all have operations in the UK. Japan's referendum-induced worries should be taken very seriously indeed.
The warnings from both the US and Japan come in the context of Britain's souring diplomatic relations with the G20's host country, China. At May's meeting with Chinese President Xi Jinping today, May will have to explain the delays to Hinkley Point C—the planned £18bn nuclear power station in which China has heavily invested. Britain has, it seems, fallen out with its three major trading partners: the EU, where 44 per cent of our exports in goods and services went in 2015, the US and China.
There has been more bad news since the summit. Australia’s prime minister Malcolm Turnbull initially seemed to give May a boost: after his meeting with her on Monday he said that their discussion was about “getting in to deal with the British early and making sure we can negotiate a very strong, very open trade agreement once they are out of the European Union.” After the summit the Australian trade minister Steven Ciobo reiterated this point—but made clear that any trade agreement was at least two-and-a-half years away. One will be struck only “when the time is right,” he explained.
Yet, despite all of this, recent economic data has been good. Over the past week the Purchasing Managers' indices have been released—these are economic indicators derived from surveys of companies. Today, the Markit/CIPS PMI for the services sector leapt to 52.9 after July's poor figure of 47.4—the biggest one-month gain in the survey's 20-year history. The news follows last week's better-than-expected manufacturing PMI. One could argue that the economic slump that was expected to follow the 23rd June Brexit vote simply hasn't materialised.
What to make of all this? Reports from the G20 have largely been bad news for post-Brexit Britain; the economic data has largely been good. One could argue that the two sets of information balance out—that the Brexit vote is not a total disaster.
Unfortunately, this rosy picture does not hold up. While recent economic data has been positive, it should be taken with a hefty pinch of salt. There are various reasons for this, but the key one is: Britain not yet left the European Union, and will not do so for at least two years. For the moment it remains in the Single Market, and continue to enjoy the economic benefits provided by it. Economic news may be positive now, and we should celebrate that. But it tells us very little about how healthy Britain's economy will be once Brexit actually happens. (For an expert's explanation of why last week's manufacturing PMI is nothing to get excited about, read this excellent piece by George Magnus).
Contrast this with the news from the G20. Unlike the economic data, rebuffs from world leaders do tell us something about post-Brexit Britain. Whereas the PMI figures offer a snapshot of our country's current health, the comments from the US and Japan look to the future. They are about what trade deals are possible once Britain has exited the EU. This clearly tells us more about Britain's long-term prospects.
So the bad news from Hangzhou—as well as Britain's faltering relationship with China—has not been counter-balanced by the positive PMI data. The latter is welcome. But on balance, the events of the last week do not give us much cause for optimism when it comes to Britain's future.
